Rights of First Refusal vs. Rights of First Offer--How Different Are They?
Posted on Aug. 20, 2012

This overview helps property owners distinguish between Right of First Refusal and Right of First Offer. Getting clear on special rights in a sale will help protect both buyer and seller.

When selling or leasing property, or in other kinds of transactions involving property, you may find yourself in a situation where you want to be the first person to try to buy the property if the owner ever wants to sell it.  For example, if you lease a home, you may want some kind of right to buy it if the owner ever wants to sell the home in the future.  This can apply to any kind of property, including real property, shares of stock, animals, and intellectual property.

There are a many ways you can create a special right to be the “first in line” when it comes to such a purchase.   Just how you structure such a special right may well determine how successful you will be in actually buying the property.  

One type of right is an “option to purchase.”  Generally, to have an option to purchase you would specifically provide that you have a right to purchase the property, when certain things happen (like notice from the owner of the owner’s interest in selling) and at a certain price (specifically stated or to be determined by some objective criteria, like a formula).  You would not usually be obligated to purchase the property, so if you declined to “exercise” your option, the owners could sell to someone else. 

Another type of right is a “right of first refusal.”  Generally, to have a right of first refusal to purchase property, you would specifically provide that upon certain conditions (like notice from the owner of the owner’s interest in selling) you would have a right (but not an obligation) to purchase at that price at a price proposed by the owner.  As with an option, you would not usually be obligated to purchase the property, so if you declined to “exercise” your right of first refusal, the owner could sell to someone else, although such right to sell often limited to the same or higher price than was offered to you.   

Yet another type of right is a “right of first offer.”  Generally to have a right of first offer to purchase property, you would provide that upon certain conditions (like notice from the owner of the owner’s interest in selling) the seller would be obligated to consider (but not necessarily accept) your offer to purchase first. 

As you can tell, the result of these different types of rights put you in a very different position in terms of your ability to actually buy the property, with the option to purchase being most secure.  Of course, if you are the owner, you generally do not want to be limited by any of these special rights.  As a result, there is often a negotiation over what, if any, kind of right might apply. 

In any event, while putting a label on such a right can be helpful, people often misuse the labels without understanding what they really mean.  As a result, instead of focusing on what someone might call such a special right, it is most important that you understand what it means and how it applies to your situation.  A qualified attorney can help you get the right kind of special right for your situation. 

Property | Property Ownership | Special Rights
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robRob M. Alston

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